The Indian hospitality industry has been a forerunner in driving growth among the service sector in India. India has huge potential in tourism development, owing to the rich cultural and historical heritage, availability of varied natural ecologies that are high on natural beauty. Hospitality services, as the bedrock of all travel and tourism related activities, generate huge employment opportunities both directly and indirectly and also is a significant source of foreign currency for the economy.
`FULL COVERAGE: UNION BUDGET 2017-18
The Indian hospitality and tourism industry accounts for 7.5 per cent of the GDP with an estimated US $47 Billion in direct contribution to the GDP in 2016. This contribution to GDP is projected to grow at 7.2 per cent year-on-year to reach a whopping $ 160.2 billion by 2026. The industry and its thriving sub-sectors such as restaurants and organized tour operators are all major source of employment.
The industry is expected to generate 13.45 million jobs! across sub-segments such as restaurants (10.49 million jobs), hotels (2.3 million jobs) and travel agents/tour operators (0.66 million) in next 3-5 years. The Ministry of Tourism has developed several plans to meet the increasing demand of skilled and trained manpower, by providing hospitality education under various government schemes. India has also moved up 13 positions to 52nd rank from 65th in tourism & travel competitive index.
FULL COVERAGE: RAILWAY BUDGET 2017-18
Tourist arrivals in India on e-Tourist Visa (e-TV) grew by 196.6 per cent year-on-year to 66,097 tourists in August 2016, due to the introduction of e-TV for 150 countries as against the earlier coverage of 113 countries, according to data from the Ministry of Tourism.
The tourism and hospitality sector is among the top 10 sectors in India to attract the highest Foreign Direct Investment (FDI). During the period April 2000-March 2016, the hotel and tourism sector attracted around $9.23 billion of FDI, according to the data released by Department of Industrial Policy and Promotion (DIPP).
Although huge initiatives have been taken by Government in promoting hospitality industry, there has been a significant pressure owing to demonetization exercise announced last year and the resultant currency crunch has impacted business, as people are deferring or even cancelling travel plans. Although the ultimate impact of the government action is yet not ascertained by any of the industry bodies, the stakeholders of the industry covertly concede the damage being done to their prospects at least in the short-term. Travel, tourism, hospitality, etc., are heavily indulgence-oriented and therefore succumb quickly than any other business to any event or action that directly pinches the consumer. Different sectors of the hospitality industry will continue to face varied effects over the short and medium term.
While the organised hospitality industry strongly believe that the latest move by the government would benefit them in the long-run as business would start moving from unorganised to organised sector and there will be demand revival by the second half of 2017. We believe that there will be more projects up for sale, and acquisitions will pick up steam once again. Banks are flush with liquidity and this can be productively leveraged to reduce interest cost of existing and ongoing projects. Cost of land is also expected to see some correction as the black money component is curbed which will lead to more investments flowing into the sector. This augurs well for the growth of the industry in the long run.
The much awaited GST regime is also expected to have a far reaching and positive impact not just on hospitality industry but across a wide range of sectors across industries. GST has the capacity to lower cost for the consumers by streamlining incidences of multiple taxation and facilitating the easy movement of goods across the country. Benefits due to service tax set off possibilities and consolidation of taxes under GST will enhance transparency and enable the hospitality industry to be more competitive.
The hospitality industry relies on a host of enabling ecosystem to function. The real estate sector for instance forms the backbone of the industry. Other sectors such as transportation, entertainment, aviation, etc. have a direct bearing on the growth of the hospitality sector. We expect the union budget to take measures to strengthen this ecosystem. Single window clearances for hospitality projects, real estate investment trusts- REITS, and granting of infrastructure status to the hospitality industry will all go a long way in strengthening the sector.
While demonetization had an adverse impact of the sector, the long term impact is overwhelmingly positive for the sector. Successful roll out of GST regime with tourism and hospitality industry placed in the lower tax slab will help the industry operate competitively and granting tax exemption for incentive tourism, adventure tourism, travel agent services etc. as sought by The Federation of Associations in Indian Tourism and Hospitality (FAITH,) will definitely help this sunrise industry scale newer heights.
Sonica Malhotra, Joint Managing Director, MBD Group